Is the Defense Industrial Base Disappearing?

The shift of U.S. manufacturing to foreign nations has become an important issue to the U.S. intelligence community. The Director for National Intelligence is undertaking a National Intelligence Estimate (NIE) on the state of American manufacturing. Growing concern over loss of domestic capability and dependence on foreign nations for key high-tech materials, components and systems has led the DNI office to start such an effort.

I’m glad to hear that, but I certainly hope that the DNI realizes that the manufacturing statistics are pretty much out to lunch.

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And in the aftermath of bailing out of Afghanistan and Iraq, the present day defense establishment — from the giants like Boeing and Northrop down to basically invisible outfits like Tom Schmidt’s Specialty Bolt Manufacturing Company and Acme Uniformed Janitorial Services and Tillie Walter’s Accounting and IV&V Agency — is going to be chopped in half.

In half. We’ve got 40 years of experience in scaling back defense production — almost 70 if you want to count WWII — and we know how these things go. And not a politician and not an economist in all the world will propose the sightest change.

How wonderful a National Intelligence Estimate will be! How useful! I’m sure Washington is just filled with bureaucrats who will examine the numbers carefully and construct wise policies aimed at expeditiously ramping up defense production in future crises – none of which, in the best government tradition, can be expected for decades to come.

Fair enough, but probably missing the point. The point being whether self-sufficiency of the industry has been impacted to a degree that should raise concern. I’d say probably. But the same case can be made for many other industries. A lot of stuff has been outsourced to places that are not nominal, or not reliable, allies, to an extent that domestic industries have effectively shut down with their physical and human assets strewn to the winds.

I concede your point, but outsourcing was not actually something I considered. The
point is that between 1945 and the present day, the fraction of GNP devoted to
military puposes has gone from roughly 15 to 4 per cent — generally in precipitous
fashion, at the end of wars. Typically, the aerospace industry loses half its personnel
during these contractions, prime contractors merge, and subcontractors either fold or
diversify in search of more profitable work. This happens at roughly 20 year intervals,
interestingly enough — 1950, 1970, 1990, give or take a year as war-related spending
tapers off — and 2010 fits the pattern nicely.

Making my point again, we know from experience how the defense industry reacts to
cutbacks, and it’s silly to pretend This Time Is Different! We’ve heard those words
before and we know how they turned out.

I agree with you (or at least I don’t disagree), but we may be talking at cross purposes. Sure, to an extent there is some scaremongering involved, but it’s easy to fall prey to a “reverse psychology” kind of effect, concluding that just because you don’t trust a source, *everything* they say is false. Outsourcing/offshoring is real. The “defense” sector is sourcing commodity components from outside the nominal “defense” sector. But just because something is commodity that doesn’t mean a disappearing supplier can be replaced within a week, especially not when the domestic industrial base is sufficiently thinned out. Compare also Boeing’s recently reported outsourcing debacle with the 787.

Michael Mandel is chief economic strategist at the Progressive Policy Institute. He is also president of South Mountain Economics, and senior fellow at Wharton's Mack Center for Technological Innovation